Arbitraging the Basel Securitization Framework: Evidence from German Abs Investment

57 Pages Posted: 21 Jun 2016

See all articles by Matthias Efing

Matthias Efing

HEC Paris - Finance Department; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Multiple version iconThere are 2 versions of this paper

Date Written: 2015

Abstract

This paper provides evidence for regulatory arbitrage within the class of assetbacked securities (ABS) based on individual asset holding data of German banks. I find that those banks operating with tight regulatory constraints pick the securities with the highest yield and lowest collateral quality among ABS with the same regulatory risk weight. This ABS selection allows banks to increase the return on the capital required for an ABS investment by a factor of four.

Keywords: regulatory arbitrage, asset-backed securities, risk-taking, credit ratings

JEL Classification: G01, G21, G24, G28

Suggested Citation

Efing, Matthias, Arbitraging the Basel Securitization Framework: Evidence from German Abs Investment (2015). Bundesbank Discussion Paper No. 40/2015. Available at SSRN: https://ssrn.com/abstract=2797067

Matthias Efing (Contact Author)

HEC Paris - Finance Department ( email )

France
(++33)695646755 (Phone)

HOME PAGE: http://matthiasefing.com/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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